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June 27, 2011

CAISfunds Provides Independent Advisors Access to Hedge Fund Managers

Access through a vetted platform to 20 top managers, including Paulson and Millennium, with DTCC-AIP compliant reporting

CAISfunds’ Matt Brown says the firm is building a bridge—not of sighs or sorrows—but of money flowing from independent advisors to some of the top hedge fund managers in the business. That bridge, says Brown, CEO and co-founder of New York-based CAIS, is an efficient pathway for advisors (he charges a toll directly to those advisors or their BDs to pass over) as well as an asset flow highway to the managers on the CAIS platform.

The platform currently has 20 managers including Paulson & Co., Millennium Management, DE Shaw, Third Point, Highbridge, BlueCrest and Kingdon. Brown and fellow co-founder (and managing principal) Rafay Farooqui said in an interview with AdvisorOne on June 24 that an additional 10 hedge fund managers will be added to the platform in the next two quarters.

“We’re leveling the playing field,” Brown (left) says, offering an alternatives platform that is “equal to or better than what the wirehouses and private banks” have now. The CAIS (pronounced “case”) bridge not only offers access, Brown is quick to point out, but what he calls an “end-to-end solution” that incorporates due diligence from Mercer Consulting and custodial, administration and integrated reporting from State Street. The company serves the independent BD and RIA communities in addition to other private banks globally, and is integrating with custodians such as Pershing and Fidelity.

CAIS (originally CApital Integration Systems) was founded in March 2009 by Brown, who began his career at Shearson Lehman and formerly ran Brownstone Partners; Farooqui, formerly of UBS and Goldman Sachs; and Jeremy Norton, formerly of Fairfield Greenwich Group and BrownstoneAdvisors. CAIS also has some private external investors.

Farooqui (left) describes CAIS Funds’ offering as a “controlled environment for alternative investments,” where there is no conflict of interest since CAIS doesn’t have its own wealth management offering, doesn’t build products of its own, and doesn’t conduct the due diligence on the products to which it provides access—that’s Mercer’s job, as a disinterested third party. “We never touch the money,” says Farooqui.

The benefits to advisors are not merely gaining access to these top-tier hedge fund managers for those advisors’ accredited investor clients, and at lower minimums—in some cases hundreds of thousands of dollars rather than millions—than doing so directly, but the DTCC AIP-compliant (alternative investment products) reporting from State Street. Brown says that “recognizing those assets above the line” on client statements is “raising the bar on end client reporting transparency.”

In addition to the reporting, those high-profile fund managers are also required by the CAIS contract to educate advisors as to their strategies and holdings on a regular basis.

Brown says the company’s goal was to take what could be a proprietary model and make it “independent and transparent” and to “deconstruct” the hedge fund of funds model. Hedge FoFs also offer lower minimums and access to hedge funds, but Brown points out that with the CAIS approach, the investor is buying into the actual funds, not a fund of funds.